COLLECTED WISDOM™ On ERISA §404(c)

ERISA §404(c) provides a plan sponsor and other fiduciaries with liability protections on  participant-directed retirement plans, like a 401k, if the plan satisfies the conditions in the 404(c) regulations.

The New Take on 404(c): Confusion in the Federal Courts - Summary: ERISA Section 404(c) provides fiduciaries with a defense against losses incurred by participants who exercise control over their accounts. But the protection applies only to the investment decisions made by the participants and not to the selection and monitoring of the investment options offered to the participants...right? Maybe. For the present, we have an anomaly; the answer depends on where you live. Located at: Reish Luftman Reicher & Cohen , May 2009. Click on headline for full article.

Plan Sponsors' Guide to ERISA 404(c) - Summary: Section 404(c) of ERISA provides protection for plan sponsors of participant directed plans. This paper describes the requirements of complying with ERISA 404(c). Located at: StanCorp Financial Group , April 2009. Click on headline for full article.

404(c) No Defense in Stock Fund Fiduciary Suit - Summary: The U.S. District Court for the District of New Hampshire has determined that Tyco International cannot use Employee Retirement Income Security Act Section 404(c) protection in its defense against participants’ fiduciary claims regarding its retirement plan company stock fund offering. Located at: Plansponsor.com (free registration may be required), April 2009. Click on headline for full article.

DOL Requirements For Participant-Directed Investments - Summary: This article summarizes the DOLs section 404(c) regulations and describes the participant disclosure rules that must be satisfied to obtain 404(c) protection. In addition, it identifies fiduciary obligations that are not eligible for 404(c) protection, impacts of automatic enrollment on 404(c) protection, and Form 5500 reporting requirements for 404(c) plans. Located at: Prudential , July 2008. Click on headline for full article.

ERISA § 404(c) Checklist - Summary: This is an update of the comprehensive 404(c) checklist prepared by the law firm of Snell & Willmer, LLP. This checklist summarizes the requirements that a plan must satisfy in order to comply with the provisions of Section 404(c) of ERISA. The requirements of ERISA Section 404(c) are summarized and listed. The checklist addresses virtually all of the requirements of the Section 404(c) regulations issued by the DOL. Located at: Snell & Willmer, LLP , June 2008. Click on headline for full article.

ERISA Section 404(c) Meets "The Real World" - Summary: Who is responsible for a 401k plan participant’s investment losses? Some courts agree with the DOL that the selection of a plan investment is a fiduciary function and, as such, lies outside ERISA Section 404(c)s protection. Other courts take a totality of the circumstances approach and indicate Section 404(c), under the right set of facts, may protect a fiduciary from liability when a 401k plan investment goes bad. Located at: Jones Day , April 2008. Click on headline for full article.

A Step Beyond ERISA Section 404(c) - Summary: The increased attention on daily market activity, trading of individual stocks (or narrow sector mutual funds) and the ability to trade participant accounts on a daily basis have all worked to frustrate what the authors believe should be the fundamental, underlying objective of a participant-directed 401(k) plan: to provide those conditions that allow plan participants the best opportunity for a successful investment experience so that they can retire comfortably. Located at: Chang, Ruthenberg & Long, April 2008. Click on headline for full article.

ERISA §404(c) Best Practices: Myths Versus Facts - Summary: After fifteen years, one must wonder why not all participant-directed plans have elected to meet the conditions of §404(c). Are there valid reasons that some have and others have not adopted a §404(c) defense, and are those reasons rooted in facts or myths? Located at: Fiduciary Risk Assessment LLC , August 2007. Click on headline for full article.

Putnam 401k ERISA Section 404(c) Checklist - Summary: A tool for applying industry best practices to your plan to improve ERISA section 404(c) compliance. Located at: Putnam , November 2006. Click on headline for full article.

Illuminating the "Broad Range" Requirement of 404(c) - Summary: This column helps illuminate the "broad range" requirement of ERISA Section 404(c) with the language of modern portfolio theory and other nations of financial economics that is found in the Uniform Prudent Investor act and the Restatement 3rd of Trusts (Prudent Investor Rule). Located at: Prudent Investor Advisors , June 2006. Click on headline for full article.

Fiduciary Liability and Its Abatement Under 404(c) - Summary: While much has been written about fiduciary liability, few fiduciaries actually understand it. ERISA Secs. 404(a) and 404(c) provide a roadmap for abating this liability. Advisers to retirement plans should help their clients understand their options and make prudent decisions. Located at: Reish Luftman Reicher & Cohen , May 2006. Click on headline for full article.

404(c): Myth or Magic - Summary: Next to the prudent man rule, 404(c) is perhaps the most discussed—and perhaps least understood—provision in ERISA. Does 404(c) offer mythical hope or magical protection for fiduciaries? Located at: Plansponsor.com (free registration required), May 2006. Click on headline for full article.

The Limitations of 404(c) Protection - Summary: Based on surveys, most 401k sponsors believe they are protected from participant investment decisions by section 404(c) of ERISA. That is, they believe that, if participants make bad investment decisions, the officers who serve as fiduciaries are protected from any claims or lawsuits. However, based on my experience and on conversations with others in the industry, few plans actually comply with the conditions in the 404(c) regulations. As a result, most plan decision makers, including committee members, are legally responsible for the prudence of participant investment decisions. Located at: Plansponsor.com (free registration required), October 2005. Click on headline for full article.

Current Considerations and New Challenges for ERISA § 404(c) Compliance - Summary: This article provides a broad overview of the ERISA §404(c) requirements and analyzes considerations and challenges many plan sponsors face as they strive to comply with those requirements. The article outlines the disclosure obligations imposed by ERISA, highlighting recent regulatory guidance applicable to mutual fund prospectuses, and discusses new developments regarding mutual fund fees. Located at: Gardner Carton & Douglas , March 2005. Click on headline for full article.

The Fable of Fiduciary Liability and 404(c) Plan Design - Summary: ERISA provisions on fiduciary liability can be very confusing. This article looks at the blurred lines surrounding plan design and fiduciary liability—or are they blurred? Located at: Gardner Carton & Douglas , March 2005. Click on headline for full article.

Impact of the SEC's New Mutual Fund Disclosure Rules on ERISA § 404(c) Plans - Summary: On August 27th, the SEC finalized new disclosure requirements for mutual funds. These new requirements become effective for mutual fund registration filings after February 28, 2005. Importantly, the new SEC rules will potentially impact fiduciaries of ERISA-covered defined contribution plans that offer investment choices to participants. Located at: Faegre & Benson LLP, September 2004. Click on headline for full article.

The Effect Enron May Have on Fiduciaries of 401k Plans That Do Not Comply with ERISA §404(c) - Summary: This column addresses the potential consequences of failing to comply with 404(c) in light of the Enron litigation, especially if the court in the Enron litigation agrees with the DOL’s position. Located at: Reish Luftman McDaniel & Reicher , September 2003. Click on headline for full article.

Mutual Fund Summary May Satisfy ERISA § 404(c) - Summary: On September 8, 2003, the Department of Labor issued an opinion letter permitting simplified compliance with the disclosure requirements for participant-directed individual account plans, such as 401k's. The Advisory Opinion represents a welcome clarification of the DoL's thinking on acceptable disclosure materials under Section 404(c) of ERISA. Located at: Seyfarth Shaw LLP , September 2003. Click on headline for full article.

404(c) and the Personal Liability of Corporate Officers - Summary: Corporate officers who serve as 401(k) investment fiduciaries are legally responsible for participants’ investment decisions—not just for the investment options, but also for the directions given by the participants. Is that statement a radical idea or a legal reality? Located at: Reish Luftman McDaniel & Reicher, January 2003. Click on headline for full article.

ERISA § 404(c): The Requirement for a Broad Range of Investment Alternatives - Summary: This column discusses one of the 404(c) requirements -— that the plan offer a “broad range” of investment alternatives. Most people think of 404(c) as requiring at least three diversified investment alternatives. That is one of the broad range requirements; however, there are two more -— and all three must be satisfied to get 404(c) protection. Located at: Reish Luftman McDaniel & Reicher, May 2002. Click on headline for full article.

ERISA § 404(c) Checklist - Summary: Although the 404(c) regulations are lengthy and formidable, they provide the basic over arching guidelines to assist employers in complying with the requirements so they can avail themselves of the 404(c) relief. Here is a "check list" propared by the law firm of Reish Luftman McDaniel & Reicher. Located at: Reish Luftman McDaniel & Reicher. Click on headline for full article.

20 Steps to 404(c) Compliance - Summary: The law firm of Reish Luftman has prepared this simple outline of the steps towards compliance. Located at: Reish Luftman McDaniel & Reicher. Click on headline for full article.

Revised Form 5500 and ERISA § 404(c) Compliance - Summary: The new Form 5500 requires that the preparer know whether a participant-directed plan intends to comply with ERISA §404(c). The inquiry regarding 404(c) compliance raises material, substantive issues. Located at: Reish Luftman McDaniel & Reicher. Click on headline for full article.

404(c) Compliance Tip: Beware the Blackout Period - Summary: Changing 401k investment providers is never easy. Among the other details, you have to suspend the participants' right to switch their investments during the changeover so that accounts can be valued and switched. The period of suspension is called a "blackout period."  No rules specifically govern blackout periods. The ERISA rules on participant direction--the 404(c) rules--say that plan fiduciaries (the company's board of directors, the trustees, the plan committee members) aren't liable for investment choices made by the participants if various requirements are met. But during a blackout period, the participants aren't directing their own accounts; the fiduciaries have effectively taken control away from them and can be liable if something goes wrong. Located at: Reish Luftman McDaniel & Reicher. Click on headline for full article.

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